Draper and Kramer aims to identify ways it can enhance the design to exceed that of its competition.
Interior design is typically considered a creative process, influenced by factors ranging from personal aesthetic to the surrounding location to emerging trends featured in magazines and on television.
But for rental housing developers and operators who undertake a value-add renovation project, interior design selections are driven by much more than just the styles of the day. Instead, they’re part of a careful analysis that takes into account comparable properties, the ultimate positioning of the property and trends that can be implemented in an impactful yet economical way.
“With any value-add investment, we start by benchmarking our property against comparable assets in the market,” Derrick Hawthorne, Vice President of Asset Management and Acquisitions with Chicago-based Draper and Kramer, says.
“Our goal is to identify ways we can enhance the design to not only meet but exceed that of the competition. If they are on a level playing field in terms of curb appeal and amenity offerings, we then start to look at unit interiors and identify ways we can drive rents – be it through floor plan adjustments to create a more open layout; updates to finishes, including cabinetry and flooring; cosmetic changes, such as fresh paint in modern colors; and other improvements, such as replacing appliances.”
A comparison of this nature should be made with properties of similar vintage, or with similar upgrades if any prior renovations have been completed. Rarely can a community recoup its investment by trying to match up to a brand-new property, so striking a balance between style and affordability is essential to the success of any capital improvement program.
“The goal is to achieve a new-construction look at a price point that, while higher than rents at the time of acquisition, is still palatable to cost-conscious consumers,” Hawthorne says.
Taking a Position
The ultimate positioning of the community is also important in planning interior design updates. The class of the building often determines how much can be invested before it is in danger of over-improving. Hawthorne says he always keeps that in mind when setting interiors budget.
“Additionally, we consider where specific floor plans might fall within individual markets,” Hawthorne says.
He says an example is Draper and Kramer’s recent renovation of a Chicago high-rise with a mix of studio, one- and two-bedroom units. The project entailed a high-end interior remodel on all apartment homes.
“But as competition in the local rental market got fierce and neighboring properties lowered rents to increase occupancy, our upgraded studio units were suddenly close in price to one-bedrooms in nearby older buildings,” Hawthorne says. “In this scenario, we saw some potential studio renters – who are typically more value-driven – prioritize space over finish level and stretch their budget a bit to get a one-bedroom. This goes to show why it’s important to understand the specific target audience for each unit and the demographic spread it will appeal to, plus the price motivation for those potential renters – all of which should be considered when planning an interior finish budget.”
Setting a Plan and a Budget
Once the investment team has reviewed the comps and agreed to the ultimate positioning of the property, they call in the design team to review the building’s current unit interiors line item by line item.
“With each element, we are looking at what changes we can make – and at what cost – to achieve our desired look,” Hawthorne says. “If, for example, kitchen cabinets can be refinished instead of replaced, we will go with the more cost-effective option as long as it doesn’t compromise the overall quality or design. There are also interior improvements we make in almost every renovation because they are low-cost but high-impact. Paint color is a great example. You’re going to paint as part of a renovation no matter what, and the unit will be repainted regularly as part of ongoing upkeep and turnover, so it makes sense to choose an on-trend color, such as a modern gray, that can instantly change the entire feel of the unit.”
With any renovation budget, Hawthorne says there is no magic formula for the numbers, as each market varies in what properties offer at different price points.
“While there are software products that claim to show how much specific interior upgrades will recoup in rent in a given market, I believe the analytics behind these decisions are very property- and market-specific and are as much an art as a science,” Hawthorne says. “Experience and familiarity with the local landscape are key, and that’s why it’s so important to tour product and dive into the data to determine what improvements will deliver the best returns.”
Maximizing Bang for the Design Buck
While working with his design team to come up with a project plan and budget, Hawthorne looks to implement design trends that are appropriate both aesthetically and financially.
“Typically, we start with updates that are the most noticeable to residents and easiest to execute,” he says. “These include updated lighting and hardware; new electrical plates that replace standard outlets with USB; and a fresh coat of paint.”
Another strategy Hawthorne uses is to look for low-cost interpretations of the luxury finishes seen at new apartment communities, similar to the way fashion retailers sell off-price merchandise.
“For example, in the past several years, we’ve seen new developments switching to wide-plank engineered wood flooring in tones of slate gray,” he says. “We can replicate that style with a more budget-friendly laminate product that also offers durability.”
Also popular today in high-end rental communities is a sleek, clean kitchen design with white or gray cabinetry and countertops, and either paneled or stainless-steel appliances, Hawthorne says.
“Our renovation and repositioning of The Clayson, a rental community in Palatine, Ill., illustrates how we can mimic that look within a renovation budget,” Hawthorne says. “We kept each unit’s existing white cabinets, but refaced them with new doors and hardware for a modern update. We also brought in light gray laminate countertops that don’t try to compete with a stone product, but have a similar fresh, crisp aesthetic. New stainless steel appliances were the final touch. The end result is a kitchen design with the essence of what we see in high-end rentals today.”
Hawthorne cautions that just because a company can afford to make certain enhancements doesn’t mean it always should.
“Sometimes, an all-or-nothing approach is the only way to make a design work,” he says. “If your budget does not allow for a complete kitchen rehab, for example, you might be better served going with a more classic look that blends with the original finishes you are keeping, rather than pulling in one or two trendy elements that will stand out for the wrong reasons.”
Interior design is just one aspect of a successful value-add renovation, Hawthorne says, “but it’s an element where it’s possible to achieve a high impact with just a few changes.”
Derrick Hawthorne is Vice President of Asset Management and Acquisitions with Chicago-based Draper and Kramer.